What have the central bankers and the governments they serve done to our money? Legendary forecaster and publisher of Grant’s Interest Rate Observer, Jim Grant, joins us to discuss the bankers’ war on the rest of us.
Unfortunately Jim Grant’s connection cuts out frequently. The transcript of his responses is only an approximation.
Ron Paul: Hello everybody, and thank you for tuning in to The Liberty Report. With me today is Daniel McAdams, the co-host. Daniel, it’s good to see you.
Daniel McAdams: Good morning, Dr. Paul.
Ron Paul: Daniel, we have a very special guest today, we know him well, he came to Washington to testify for me on various time, and more often than any other individual. I have high regards for Mr. Jim Grant. Jim, thank you for being with us today.
Jim Grant: Thank you, it is a pleasure, Dr. Paul.
Ron Paul: Great. Jim has a degree from Indiana University, as well as Colombia University. He has multiple books out, he has written a lot of them on finances mostly, but he also writes history books, which always fascinated me. He has a book out on John Adams and the Speaker Reed, and he is very much involved in journalism. But I first got to know Jim when he was working for Barron, for Robert Blyberg. But, Jim, you have a great past, we can go along with all the things you have done and all your views, and we want to get to that, but thank you for being with us today, it’s great to have you here.
Jim Grant: It is my pleasure, Ron.
Ron Paul: Good. You know, the big thing that goes on, the agitation that goes on constantly, because you get asked these questions, I get asked these questions, and it’s the essence of everything monetarily: What’s the Fed going to do with the interest rates, are they going to raise them from 0.25% to 0.5%? And on again and off again and innuendos. Markets are moved by billions of dollars just by innuendos and minutes. You’ve come down on the side of saying they’re bluffing. One year ago, they did raise interest rates by a quarter of a point, but do you still take this position that they’re bluffing, or are they going to be finally put in the corner and humiliated. That they have to get their credibility back, so they say, “I guess we’re government to have to raise interest rates by a quarter of a point”.
Jim Grant: What an excellent introduction to a fine question. I don’t think the Senate is bluffing, I think it’s the same Wall Street smart heads that dearly what like to rest it’s little interest rates again. I think that the Senate is all too aware of the difficulties of doing so, it is in position of … like 72 degrees room temperature. Alas, it cannot do that, it being a central bank with staff working … before that future comes to pass. So I think the Fed is on the arms of the dilemma of central planning. It is a central bank engaged effectively in the business of central planning, which business is a …
Ron Paul: Jim, I want to ask you a general question about them raising interest rates. Let’s say they’re around 0.25%, and they double it and they go to 0.5%, and that makes the markets very nervous and sometimes they over react. What is the significance of going from 0.25% to 0.5%; or, say, 1%, and doubling it to 2%? Is it the percentage gain in percentage numbers? How does that work, do you have an idea how the market responds to those two different scenarios?
Jim Grant: Well, the arithmetic significance of the move from 0.25% to 0.5%, I guess you can call it doubling, but the absolute difference of one quarter of one percent may seem to a sensible layman to be trivial, what possible difference could it make? I think the difference it makes to the market is A) The difference of expectation. The market … has been flipping the life of … these past 6, 7, 8 years 0% … regime of bond buying by the Fed, and more recently by the central bank. And it is worrying about suffering withdrawal hangs from this regime of very easy money and Fed engineered rises in the prices of stocks and bonds. Expectations is one important force in this mix. Another is what we call a multiple usage of leverage .. you can’t make money at very low rates of interest, unless you amplify your assets by more of them …
Ron Paul: You know, Jim, one of the things about central banking is power and monopolies, because they want control and it’s a historic thing. But, right now, there are hints that there’s a resistance to the cash economy, and I think Daniel had a question regarding that.
Daniel McAdams: Mr. Grant, your most recent article in the Wall Street Journal was a book review, and I dealt with the issue of the war on cash. There are so many implications, financially, of course, and in terms of civil liberties as well. One of the things that we were interested in was the international ramifications of the war on cash. We export tons and tons of cash, and that’s how we borrow money. How do you see the international implications if the crack down on cash continues?
Jim Grant: Well, I think the international implications are not so important as the domestic ones. It’s true that billions upon billions of Ben Franklins and U.S. grants and Andrew Jacksons are exported every year and powers to be worry these units of currency … the case against the hundred dollar bill is that there are way too many of them in circulation and the excess in circulation is almost certainly helping people do what they’re …
Ron Paul: Jim, I want to put this up for the viewership. I think you’ll recognize this, this is your most recent letter. It is called “Grant’s interest rates observer”. It’s a great journal here that you put up twice a month. I want to call attention to this particular one, because I think you’re daydreaming and wondering about what things would have been like if the last presidential race had come out differently, and you were the chairman of the Federal Reserve. You write some interesting things, you write this is what you would do, much more precise than I do. Some days I just say, “I’d lock the key and take it away and repeal the Federal Reserve Act”. But you’re a studious person, and you propose this thing where it’s deliberate. You know about how you’re going to do it, but it’s mostly through education that you’re going to try to teach people about why market rates of interest are important, why sound money is important, why regulations are very bad, and monetary history is important to you.
Tell these clowns up there what this is always about, and maybe they will accept our way. But I think the one suggestion you have is the very best, and that is, fire 700 PhDs that are raking in cash by spoon feeding the Federal Reserve from university to support this type of monetary policy. I think that is a great idea, but what do you think the odds are that this is going to happen in the near future, or with the people running for president right now? Do you think we’re going to have any chance?
Jim Grant: Well, I don’t want to be a pessimist about this …
Ron Paul: But, Jim, you’ve accused the Fed, and I agree with you, of course, that they are price-fixers. When Bretton-Woods Agreement broke down, not only did they usher in an age where there was lot more price fixing of money, but they ushered in an age, at that particular time, wage and price controls. But, right now, we’re wondering where we’re going to go. But I want to bring up the subject of morality of money. Is what we have now, especially since 1971, can be rather blunt about what they’re doing? It’s immoral, it’s fraud, it’s deception, it’s taxation, and all these kinds of things. I know we deal mostly in economic terms, but could we stretch it out and say maybe we could use the word Bastiat used, it’s a bit of plunder for certain individuals at the expense of others.
Jim Grant: Well, yes
Ron Paul: Jim, we need finish up, but I do want to ask you one more question about where we stand on the credibility of central banking. Because in my 20 or 30 years that I’ve been involved, it seems like they’re on the defensive more than ever before. Before it used to be that they were imagining, they created prosperity and got us out of recessions. Yet, today, I think they are more even in the conventional sphere of the investors and all starting to think, “Where is the credibility, 0% interest rates? Do you think they’re on the roast, do you think this is a sign that there will be a major change in central banking? What’s your assessment, do you think they’re going to limp along like this for years and years to come, or is there going to be an end point that we’re approaching where something will have to be done?
Ron Paul: Great, we have to go now, Jim, but I want to thank you very much for being with us today, and also thank you for all the times that you’ve participated in Washington, and trying to spread a message which I think is so important. Because, regardless of how we spend the money, I think you have to understand monetary policy. But thank you very much for being with us.
Jim Grant: You are so welcome, Ron, thank you.
Ron Paul: I want to thank the audience for being with us today, and emphasize the fact that the Federal Reserve is there for precise reasons, and one is to finance big government. Whether it’s the welfare or the warfare state, I don’t think there’s enough taxation out there, the people wouldn’t tolerate it. This is a deception on the people, and it is a moral issue that is involved. But without the Federal Reserve, so much of spending, and excess of government, and abuse of our civil liberties and the wars that we fight and the crisis we have, which is being reflected in today’s election. Even though people don’t understand exactly what’s happening, I think it’s the end of the stage of not only the monetary system and this type of central banking we have, but the end of a Keynesian era where their economic policies are failing, just like the Soviet System failed because socialism failed. Our system is failing, too.
But our guest today, Jim Grant, has been fighting this battle for a long time, whether it’s been at Barrons or doing his own Grant’s Report, or coming to Washington to help me out the best he can, I think the message is loud and clear that something will come and hopefully we can have an influence and change into a sound monetary system which will include a system of political freedom which we need so desperately.
I want to thank everybody for tuning in today to The Liberty Report, please come back soon.